You’re no doubt thinking that being your own boss is a fantastic perk now you’re working as a contractor or consultant? But, after having weighed up the pros and cons, you’re also probably thinking, how on earth do I fund my house purchase or re-mortgage? Not an issue for Manchester Money. You’ll be pleased to know that being a contractor/consultant isn’t seen as a disadvantage these days so you can discard those worries!
There are many products available to contractors and consultants which are specifically designed to meet your needs. Because you’re probably paid on a daily or weekly rate, you won’t have a salary or the three years’ worth of accounts for a lender to see. So instead, there are specialist mortgages which allow you to borrow money based on your contract rate, as you fall into the low risk category and have a good credit rating.
If you tick these boxes, then it’s highly likely that you’ll be able to find a mortgage at the same rate as a standard PAYE employee. Of course each lender will have their own criteria which in turn will dictate what they need to see and who they lend to, but most mortgage lenders will be comfortable arranging a mortgage based on the contract you have now, rather than the one you may have had in previous years.
Can I get a Contractor or Consultant Mortgage
As long as you are employed on a fixed or short term contract, or, you’re self-employed but working (for example) as a tradesperson for one company. So you may be working as a Commercial Plumber or IT Consultant and only undertake work for one business.
There are different views taken by lenders and they will all use a number of different criteria to work out if you’re eligible. For example, if you’ve worked for the same industry previously and have just taken on a
new contract, then it may be possible to get a mortgage. Always speak to a specialist broker, such as Manchester Money. We have specialist advisors who can help you through every step of the way
What are the types of Contract or Consultant Mortgages available?
We can carry out an assessment of your current circumstances in order to ascertain which would be the best mortgage for you, but as a rule of thumb, these are the options:
Zero hour contracts – For this one, lenders will generally need to see evidence of a 12-month record. But, depending on your circumstances and an overview of the whole lending you’re trying to achieve, it might be possible for you to use this type of income, even if your proof is less than a year.
Fixed term contracts – With this one, you’ll need to demonstrate previous experience of being a contractor or consultant.
Working under an ‘umbrella’ company – 12 months’ track record required with this one.
Agency workers – Again, 12 months’ working history required.
Self-employed – As a rule of thumb, a 6-month contract would need to be in place.
How do I go about getting a Contractor or Consultant Mortgage?
It’s more time-consuming and challenging than the mortgage for a ‘regular’ employee, but that’s why we’re here. Just make sure you’re clear about the type of contract you’re currently undertaking, the terms, any past experience and then we can help find a suitable solution. After all, you’re enjoying the perks of being a contractor/consultant, so it will be worthwhile.
I’ve only just started contracting/consulting, will this affect my chances of getting a mortgage?
Firstly, talk to us, we’re the experts. But, generally speaking, depending on the type of work you undertake, it is possible you could get a mortgage by proving you have a minimum contract term of 6 months. It may also be a requisite that you demonstrate a history of employment in a similar field.
Will I be able to get a mortgage if I’m on a short term contract?
This doesn’t necessarily hinder your chances of getting a mortgage, but as with all lenders, they will probably expect evidence demonstrating a track record of earnings. As a self-employed borrower, lenders will need to ensure that any borrowing you’re looking for is sustainable based on your previous contracts and any future ones.
Do I need a deposit for a contractor/consultant mortgage and if so, how much?
There isn’t a set requirement for a minimum deposit for this type of mortgage, which means as little as 5% may be sufficient. That said, as with any type of mortgage, the lesser the deposit, the greater the impact on the interest rates available. Equally, a larger deposit will yield a lower rate of interest and repayments. This will also be dependent on any income being adequate enough to support the mortgage you are looking to achieve/the balance of the purchase price of the property
Is there a limit to how much I can borrow with a contractor/consultant mortgage?
If you are a contractor or consultant on a daily rate, the usual sum is to multiply your day rate by the number of days you work each week, then multiply by 48 weeks. This calculation gives an indication of your annual salary which can then be used to calculate a mortgage. As usual, different lenders have different criteria, so may well use a different number of weeks versus the 48 weeks mentioned above. Once the figure is established, then it may well be multiplied 5 times to work out a maximum borrowing potential.
If you’re a contractor/consultant with a day rate of £250, multiply this by 5 working days then multiply by 48 weeks, which would yield a maximum borrowing amount of £300,000.
Is it possible to get a ‘right to buy’ mortgage as a contractor/consultant?
In a word, yes. Right to buy is a government scheme designed to help tenants in a council house buy their home, quite often with a large discount. This could mean that the discount offered can be used as a deposit, but some lenders may request a personal deposit as well as the Council discount. Bear in mind that not all lenders accepts this type of application, but that said, a Right to Buy mortgage application is not affected by your employment status. Providing that the lender’s criteria regarding your income is met, there is no reason why your Right to Buy purchase wouldn’t proceed.
As a contractor/consultant, can I get a ‘buy to let’ mortgage?
Generally speaking, Buy to Let mortgages are worked out on the rental yield of the property you’re looking to purchase. This may mean that the terms of your employment are not prevalent, but on the flip side, it may mean that they require a minimum term of the contract to be remaining. As with all mortgages, the subsequent mortgage will be dependent on your income being enough to support the potential borrowing.
Is it possible to get a shared ownership mortgage as a contractor/consultant?
This isn’t a mortgage type that is widely available, so you would need to speak with us at Manchester Money to discuss. We can then research the market place for you. Combining this option in conjunction with being a contractor or consultant, makes it a little more challenging, but always worth a chat if this is what you’re looking for.
What happens if I have bad credit as a contractor/consultant?
You can still get a mortgage as a self-employed contractor/consultant with bad credit, but we would need utmost full disclosure. No matter how bad your credit rating is, the severity along with any past or current credit issue will need full discussion then we can research the best options for you.
What are the best mortgages lenders for contractors, consultants or agency workers
As a business, we have a team of very experienced mortgage advisors, which means we will know which lenders approach. This knowledge will strengthen your application, backed up by your frank disclosure of your individual contract type and of course, your financial story. We can then very quickly advise upon the best route for you.
If you’re a contractor or consultant with an agency, it’s likely you will be requested to provide additional documents along with your regular payslips. Along with a copy of your contract and any evidence you may have which demonstrates a track record in the same line of work.
What’s the best mortgage rate I can expect as a contractor/consultant?
Whilst we can’t actually give you a specific rate of interest, the interest you will pay on your mortgage will be determined in a similar way as it would to a PAYE employee who might be in similar circumstance. It’s highly likely, that as a contractor or consultant, you will receive a generous remuneration enabling you to save a larger deposit. This means your substantial deposit lowers the interest rate as you won’t be borrowing as large a sum thus reducing the cost of the loan.
There aren’t any restrictions as such on the types of mortgage a contractor/consultant can access. Fixed, variable and tracker are all available.